Investors in private mortgages are licking their chops over what some see as a pending tidal wave of note sales in the coming months.

They believe many sellers will be forced to finance their own sales -- or, in the parlance of the trade, “hold the paper” -- because their buyers won’t be able to qualify for a mortgage from traditional lenders.

“More than half of the loans made in 2019 would not meet today’s criteria,” says Sarah Strochak, a research analyst in the Urban Institute’s Housing Finance Policy Center.

Some sellers will be content to collect their money bit-by-bit over the months, as though they were landlords. But note-buyers think those who want their proceeds sooner, and in one lump sum, will want to sell their paper, even if it means putting less cash in their pockets.

“A seller-held tsunami is on the horizon,” says William Mencarow, publisher of The Paper Source newsletter.

Scott Arpan of Advanced Seller Data Services, a supplier of leads for seller “carry-back” notes, believes a slew of paper will hit the market in the coming months.

“History shows we will see a flood of new notes,” Arpan says. “Unless the economy can quickly return to full employment, many (buyers) will suffer damaged credit even when they are responsible borrowers.”

The question for sellers, then, is how to create a financing vehicle that investors will want to take over if and when the time comes to sell it.

For starters, spend the money to have a local real estate attorney create the necessary, state-specific documents. Absent that, find a paralegal to handle the task, or search the legal websites. Your house is too valuable to rely on standard forms sold at office supply stores.

Realize, too, that you’ll have to sell at a discount, otherwise there’s no reason for an investor to take the mortgage off your hands. And the price they pay depends on any number of variables. The closer the paper is to bank quality, though, the smaller the discount.

Says Mencarow, most legit note-buyers are looking for seasoned notes -- those that are at least six months old, and that have been paid on time. Even more important, however, is what you collect each month. The monthly payment is “the single most powerful financial aspect determining the value of a note,” according to Mencarow.

An amortized note is more valuable than one with a balloon payment at the end of the loan’s term, he adds. In other words, all else being equal, a 10-year note with a large monthly payment and no balloon is worth more than a 10-year note with a smaller monthly and a balloon payment at the end.

According to Mencarow, a single-family house in a stable neighborhood and occupied by a borrower with an excellent credit record and an unblemished payment record is “the best collateral possible.”

Some note-buyers might use a different hierarchy. Either way, you’ll want your mortgage to be in the first lien position, because if you have to foreclose on your borrower, you’ll want to be the first creditor to be paid from the proceeds of the property’s sale. That’s why a first lien is more valuable than a second -- and a second, though not as valuable, is more so than a third.

In taking back paper, the seller becomes the lender. Consequently, you should check out your buyer in the same way a conventional lender would. That means asking for a full-blown credit report, which the buyer pays for.

Also check his or her employment history, looking for at least two years at the same company (or at least in the same field). Ask for their tax returns, a list of all assets and debts, rental history and perhaps even a criminal background check.

Why go to all this trouble? For one thing, you will be protecting yourself from dealing with someone who doesn’t pay as promised. But for another, someone who buys your note will want to know the same.

Mark Donoghue of the Americus Financial Group says he pays “careful attention to our due diligence and underwriting.” Nathan Turner, also known as “the Canadian Note Guy,” says his pencil “is a little sharper” these days. And Kevin Clancy of the American Funding Group requires a borrower interview before closing the deal.

“We’re very concerned about a borrower’s ability to pay,” Clancy told The Paper Source recently. “Last week, we were buying a nice residential note in Florida. Our final step was a payor interview. When we talked to the borrower, he asked if we could defer payments as he has lost his job. We can’t buy a note when the borrower doesn’t have income.”

You should always seek as large a down payment as you can obtain. Just like a conventional lender, you’ll want your borrower to have as much skin in the game as possible. After all, the more money your buyer has in the deal, the more difficult it will be for him or her to walk away.

“Equity, equity, equity,” says Donoghue. “This remains our No. 1 risk characteristic.”

Your location also may determine your ability to sell your loan to an investor, at least for a better price. For example, Donoghue is not buying in California, New York, Connecticut and a few others states. And Gene Powers of Nationwide Secured Capital is shying away from places related to large airline and tourism employment.

Paige Panzarell, aka “the Cashflow Chick,” says she has always been careful about buying paper in states where it is difficult or takes too long to foreclose. And she may even eliminate even more states over the coming months.

Fuquan Bilal of NNG Capital, which buys mostly second liens, is also retooling in anticipation of a strong market starting in the third quarter, as sellers begin a search for liquidity. “It will be a buyer’s market again real soon,” he told The Paper Source.

There’s lots of good information on real estate websites, but ratings of individual agents probably aren’t worth much.

According to the latest report from the Consumer Federation of America, you should approach such ratings with a healthy sense of skepticism. “Consumers will learn far more about agents if they read all the customer reviews,” said the study’s author, Stephen Brobeck -- the key word being “all.” Many, or even most, of the reviews on a given site might be positive. You’ll have to read every last one of them to find out if a previous client had problems or issues you should be concerned about.

“There has to be a critical comment in there somewhere,” says Brobeck, who headed the CFA before relinquishing that post to become a senior fellow. “So read all the reviews carefully and look for details.”

Even at that, though, you may not get the full picture of an agent’s prowess.

Most reviews are accurate, at least on Zillow’s website, Brobeck’s study found. The site vets all legitimate reviews that are submitted, and agents are not permitted to remove the negative ones.

However, on the other sites studied -- realtor.com, HomeLight, Yelp and Facebook -- the agent has the option of including only favorable reviews, according to the report. And as this column pointed out in early January, sites operated by agents often include fake reviews from friends, colleagues or the agents themselves.

Customer ratings can be even more bogus, according to the study. Ratings are usually on a scale of 1 to 5, but nearly all of the hundreds of agents studied by the CFA were rated at 4.0 or better, with “a large majority” of the sample receiving a 5.0.

It’s strange, indeed, that there’s not an average agent in the bunch.

The study found numerous cases in which agents with “very few and sometimes only one customer comment” were anointed with a 5.0 rating. A “significant minority” with a 5.0 rating had three or fewer customers.

“The ratings are not that helpful,” Brobeck told me. “They are inflated and do not provide a reliable basis for comparing agents.”

The new report is the fourth in a series on real estate from the CFA. Two of the previous studies dealt with issues concerning agent representation, and the third covered the commissions agents and their brokers charge.

Nine in 10 buyers and sellers use an agent, yet most of them undertake limited searches before hiring one, if they search at all. According to research from the National Association of Realtors, 75% of buyers and sellers interview just one agent.

But, as the CFA report points out, “there can be a huge gulf between the quality of services offered by different agents.” And they usually charge the same, whether they’re experienced or not. That alone is reason enough for buyers and sellers to do their homework.

Unfortunately, most people go with the first agent they speak to, without looking into past sales, when those sales were completed and whom the agent represented -- the buyer or seller. Without that information, Brobeck says, it is difficult to determine whether the agent has had recent clients.

Here, Zillow earns high marks. Based on a sample of active agents in 30 cities, the study found that the popular site is most likely to include date and party represented for past sales. NAR’s website, realtor.com, came in second, but it only listed past sales in little more than half the agent profiles, and only 1 in 5 profiles included customer reviews.

The others were far behind, even worse than the agents’ website themselves, which tended to list past sales and more customer reviews than Yelp, Facebook or HomeLight.

Even at that, Brobeck warned that Zillow’s customer reviews “are not unbiased” because almost all of them are from customers who have been asked by their agents to post their thoughts. Obviously, agents don’t ask their unhappy customers to report how they feel.

The report also notes that some of the sites trade high ratings for advertising dollars. “An agent receiving a rating below 5.0 isn’t likely to cooperate with the site, let alone pay for advertising,” it says.

In studying agent profiles, consumers would be better served by paying particular attention to their recent activity. They should also look at the price history of properties listed by the agents to learn how long it took them to sell and whether the selling price was marked down, and by how much.

Recent sales mean the agent is active in the market, while substantial price reductions could indicate that the agent inflated the original asking price and had to lower it to net the sale. Days on the market can also indicate whether the place was priced right or not.

When you’ve picked a few agents who seem to stand out, interview each one in person. Ask if they are part of a team in which the work is delegated, and ask for an explanation of why the property is worth what the agent believes it to be. Determine how long the agent has been in the business, and whether they have worked in the specific community or neighborhood where you are buying and selling.

As Brobeck points out, it’s far easier for a realty agent to secure a license than it is for hairstylists. In some states, an agent can obtain a permit after only a month or two of training.

Buyers these days go online to discover what’s available. And with the pandemic still very much a concern, they tend to visit the houses they find appealing by taking a virtual tour rather than an in-person look-see.

That’s because many sellers still aren’t comfortable with strangers coming into their homes -- masks or not. But a surprising number of agents -- about 27%, according to a recent National Association of Realtors survey -- aren’t making use of virtual tours at all. Worse, a poll of professionals at a recent town hall sponsored by Inman, a real estate-centric news service, found that 74% had never made a listing video.

Undoubtedly, many of these non-users are part-time agents, or those who only cobble together a few sales a year. So if you’ve mistakenly signed up with such an agent, either jettison him or her as soon as possible or learn how to make your own video. The experts say it isn’t all that difficult. Besides, even top-selling agents may ask you to create a movie of your place because they aren’t crazy about venturing outside yet, either.

Video programs range from the simple to the complex. You can use Facetime, Facebook Live, Google Hangouts, Zoom, YouTube, Instagram or any of a host of other apps. You can opt for something more elaborate, but just remember that your production doesn’t have to be incredibly professional.

A smartphone is the only tool you’ll need, says Patty McNease of listing website Homes.com. (Full disclosure: I contribute content to Homes.com.) If you want to produce something more memorable, you also might want to get your hands on a tripod, microphone and light panel.

Otherwise, make sure to turn all the lights on and open all window coverings to allow as much natural light inside as possible. You might even consider replacing all your light bulbs with high-wattage ones.

Before you start filming, send pictures of your house to your agent for advice on what to highlight, what needs to be painted or otherwise improved, and suggestions of what furniture and personal items to remove.

All in-person tours start at the curb, so start your video there, too. The folks at Home Matters, a real estate e-newsletter, suggest picking an eye-catching location to start: say, a corner of your lot that shows your property’s expanse. Of course, make sure you’ve spruced up the yard and front door; a dull door and shabby shrubs will defeat your purpose.

As you move along to the front door, begin a narration to tell viewers about what they are seeing. But be careful not to divulge negative information. Saying the lot is a half-acre, the largest in the neighborhood, is good. But the fact that you pay someone $100 every other week to mow the lawn is not something a potential buyer needs to know.

Once inside, point out the highlights of each room, both visually and verbally. It’s better to stay focused on an attribute or two for too long than to move through too quickly. And camera angles are important, says Allen Alishahi of ShelterZoom. If you are looking to showcase your stone countertops, prop your camera on one side of the kitchen to show them on the other side of the room.

While you’re discussing certain items, try to build an emotional connection to them, says McNease. For example, at the fireplace, you might mention the many nights you enjoyed reading to your kids or grandkids in front of a roaring fire. Or at the rear deck, casually note how the family enjoyed “picnicking” outside when the weather was nice.

Some desirable items to highlight: The size of rooms, as in 20-by-20 or 400 square feet; ceiling heights; trims and moldings; walk-in closets; dual sinks; expansive windows; hardwood flooring; custom tile work or anything else that might set a buyer’s heart fluttering.

If you have vaulted ceilings, show them, too. But don’t mention what it costs to heat and cool your house until you are asked. And if you redid your kitchen, say, or put on a new roof, then mention that. Tell folks when the job was done, and that you secured a permit from the local authorities.

If you’ve already moved out of the house, consider virtual staging: a process of virtually adding key pieces of furniture to your video. Chicago agent Margaret Goss found several companies online that offer this service. This step can be helpful, since many people have trouble visualizing empty houses, especially remotely.

It’s hard to say how long your video should run. Some buyers will want to see and hear as much as possible, but others will lose interest quickly. Jameson Doris of RISMedia suggests keeping it short -- “a couple of minutes at most” -- unless you are using Facebook Live. Then, it’s the longer, the better.

If your photos and video are good enough, they might be sufficient to nail a sale -- some people these days are buying houses without ever stepping inside them -- or at least to whet someone’s interest enough to see your place in person.

Above all, don’t be overly critical of the quality of your work. You might have to take a couple stabs at it before you get it right. Says David Gumpper of the WAV Group consulting firm: “This approach is new, and will only get better over time.”